Goldman Sachs Maintains Sell Rating On J.M. Smucker: Analyst Highlights Challenges Despite EPS Beat

Goldman Sachs analyst Jason English reiterated a Sell rating on J.M. Smucker Company SJM with a price target of $131.

The company reported a second-quarter FY24 sales decline of 12% year-on-year to $1.94 billion, missing the analyst consensus of $1.95 billion. Adjusted EPS of $2.59 beat the consensus estimate of $2.47.

Better-than-expected price realization drove superior gross margins, which, along with lower distribution costs, drove higher operating margins.

The company reported an EPS beat in the quarter despite the absorption of a $0.29 supplier agreement termination in its coffee segment, according to the analyst.

Management provided an update to its full-year outlook to account for its recently closed Hostess acquisition. 

While it trimmed its organic growth outlook on lower co-man revenue, it raised its full-year underlying EPS outlook.

Coffee profits were weighed down by a $39 million supplier agreement termination charge.

Moving down the P&L, a gross margin of 38.7% (vs. GS/consensus 37.6%/37.2%) came ahead of expectations on higher price realization and lower green coffee costs, the analyst notes.

 As such, the company now expects FY24 EPS in the range of $9.25-$9.65 (vs. $9.45 to $9.85 prior and consensus $9.62), with 2H24 implied EPS of $4.45-$4.85 below incoming expectations (consensus $4.94). 

According to the analyst, lower-than-expected input cost inflation, more benign competition, and greater-than-expected innovation or cost-cutting success may pose risks to the price target.

Price Action: SJM shares are trading higher by 3.27% to $116.11 on the last checked Tuesday.

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